What are automatic payments?
Simply put, an automatic payment is a money transfer scheduled for a certain date. These payments are usually put in place to cover a recurring bill being made to a recipient on a regular basis from a bank account.
Most of the time, you'll set up automatic payments via the company due to receive the payment. Some companies also provide an online service for setting up payments, which can ensure payments are more secure.
How does an automatic payment work?
All kinds of bill payments can be set up using automatic payments. This can include essentials such as mortgages, electric bills, credit card bills, car payments and much, much more. Setting up automatic payments for these bills is easy from a checking account.
To set up your automatic bill payment, you'll have to arrange it with your bank. This includes outlining when, who and how much you need to pay each month. Once the necessary information has been provided, your bank will create an automatic payment for you. Once this payment has been set up, your bank will move the funds automatically each month.
Automatic payment examples
Automatic payments are particularly useful as they can help you avoid missing a bill payment, being charged a late fee, or damaging your credit score.
Here are a few automatic payment examples:
Paying a monthly car loan - You can set up an automatic payment for your car loan so that it is paid off every month on the same day. This way, you'll never have to worry about getting behind on payments.
Paying a mortgage - Mortgages are particularly well-suited for automatic payments, as they are typically paid off over a long period of time. By setting up an automatic payment, you can ensure that your mortgage is paid on time, every month, for the entire duration of the loan.
Paying credit card bills - Credit card companies often offer the option to set up automatic payments for your credit card bill. Having automatic payments for your credit card bill can help you stay on top of your payments while also building your credit. By paying off your credit card before the due date, you can lower the amount of interest you have to pay.
Automatic payment benefits
Choosing to pay via automatic payment comes with a number of benefits. These benefits include:
Avoiding late fees - Automatic payments can help you avoid costly late fees by ensuring that your bill is paid on time, every time.
Building credit - Making on-time payments is one of the best ways to build credit. Automatic payments can help you make sure that your bills are always paid on time, thus helping you build your credit score. Find out your business credit score.
Easy to set up - Automatic payments are easy to set up and can be done so through your bank or the company in receipt of payment.
Convenient - Automatic payments are a convenient way to pay your bills, as you don't have to remember to make a payment each month. Automatic payments are a great way to avoid having to enter finicky card details when it’s time to pay.
Saves time - Automatic payments can save you time, as you don't have to spend time each month manually paying your bills.
Can save you money - Automatically billing may make it easier for you to keep track of your spending and budget - you'll know exactly when money is coming out of your account.
Pay less interest on business credit cards - By paying off your credit card balance in full each month, you can avoid paying interest on your credit card debt, too.
How do I stop automatic payments from my bank account?
Automated payments can make handling your money easier in a lot of ways. However, they aren't suitable for everyone. Having money taken automatically can be an issue if:
- Your income goes up and down with inconsistent cash flow
- You don't have savings/a money buffer for unplanned costs
- You find budgeting difficult
- Your circumstances change and the cost is an issue
- You no longer wish to use the service
In these cases, it may be better for you to stop your automatic payments.
If you want to stop an automatic payment, you'll have to contact your bank or the company in receipt of payment to request that the payment is stopped. In some cases, you’ll have to give them a notice period, such as 2 weeks before the payment is stopped.
If you decide to keep your automatic payments, there are a few things you can do to help manage them -
- Set up a payment calendar (with reminders)
- Monitor which bills are automatic and which aren't
- Create alerts for your balance
These tips should help make sure your automated payments are managed in a way that works best for you.
Do automatic payments hurt my credit score?
One worry that people have about automatic payments is that they might hurt their credit score. Paying by automatic debit or credit card withdrawal shouldn't hurt your score as long as you have enough money in your account to pay the bill when it's due. In fact, if you have a history of paying bills late, or not at all, setting up automatic bill pay can help you build your credit score over time by making sure your payments are always made on time.
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